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In Danbury, FuelCell deficit reaches $1B — and counting

March 15, 2019

This upcoming week in the United Kingdom, the fuel cell industry holds an annual confab whose scheduled lineup of speakers includes a senior FuelCell Energy expert providing an overview of large-scale applications of the technology.

As for his own company, which has designed and built the largest fuel cells ever en route to its golden anniversary marked in mid-March at its Danbury headquarters?

Elusive still is the alchemy to achieving profitability, in the same steady state that its machines generate electricity with no noxious emissions.

Even as it marked 50 years in business on Thursday, FuelCell Energy reported last month it had crossed the $1 billion mark for the accumulated deficit it has amassed in its history as a public company — if strung out over its full history, amounting to $20 million a year on average in good years and bad.

In the 1990s selling both stationary fuel cell power plants and nickel-zinc batteries, FuelCell and ERC had a string of years in which it eked out profits ranging up to $500,000. In 1998, however, FuelCell embarked on its current run of annual losses that reached a trough of $97 million in 2008, while never getting above a $30 million loss in any one year.

The two-decade run of earnings futility that raises an obvious question: will FuelCell ever be able to find a path to profitability to justify it continuing as an independent company? And if not, what are the long-term implications for the clean-energy innovator that employs more than 400 people in its home state today?

A builder and an operator

A FuelCell spokesperson did not did not answer Hearst Connecticut Media questions on that front, but in recent conference calls with investors the company has suggested the company’s path to sustained profitability lies in operating the fuel cell power plants it builds, in addition to manufacturing fuel cells and modules for sale to other entities.

Fuel cells produce streams of electricity by passing hydrogen through stacks of coated membranes that siphon off electrons chemically. The hydrogen is then combined with oxygen to produce water as the main emission, along with heat that can be channeled for facility needs.

The Wales scientist Robert William Grove is credited as being the first to demonstrate the process in 1838, and after more than a century of additional research, General Electric hit on breakthroughs with membrane coatings to produce sufficient electricity for fuel cells to be used on NASA’s Project Gemini space expeditions in the 1960s.

Bernard Baker and Martin Klein created FuelCell’s predecessor company in March 1969 as Energy Research Corp., with Baker having been introduced to fuel cell technology while on a Fulbright fellowship at the University of Amsterdam. There, Dr. G.H.J. Broers was experimenting with molten carbonate fuel cell technology designed to generate efficiencies by operating at more than 1,100 degrees Fahrenheit, with Baker using that as the springboard to starting the company that would become FuelCell.

FuelCell, Bloom Energy and Doosan Fuelcell in South Windsor remain the three biggest U.S. makers of stationary fuel cell power plants today. With its heritage long rooted in its original molten carbonate heritage, in the past few years FuelCell has been working to develop solid oxide platforms, the specialty of San Jose, Calif.-based Bloom Energy.

Bloom Energy went public last July, with its shares down 16 percent, with FuelCell shares down more than 70 percent over the same interval.

A ‘when’ question

In a 300-page Battelle Memorial Institute analysis of the cost of fuel cells conducted on behalf of the U.S. Department of Energy, researchers identified what they determined to be the biggest driver of costs for the technology: insufficient demand to justify mass production, losing out on economies of scale that have benefited the solar panel and battery industries among others.

Bottone suggested as much in a 2013 interview with the United Kingdom publication Quartz, quoted as saying “it’s a ‘when’ question, not an ‘if’ question” in his words to achieve profitability as FuelCell ramped up production.

To do so, Bottone added at the time, FuelCell would have to have an annual production rate of systems producing 80 megawatts of electricity in any given year, with FuelCell manufacturing just 25 megawatts of systems in each of its two previous fiscal years ending in October.

In January, an analyst with Cowen & Co. estimated that FuelCell spends between $5 million and $6 million today to manufacture and install its systems, as calculated on a per-megawatt basis, and that it sells them for between $6 million and $7 million a megawatt.

But other costs apply, including future interest on loans FuelCell requires to finance the construction of a plant, and fuel cell modules become spent over time requiring new modules to be swapped in, at additional expense.

FuelCell completed construction in 2014 of its largest single project to date, a facility in South Korea generating nearly 60 megawatts. Posco Energy assembled the fuel cells in South Korea under license from FuelCell, with the companies now in a legal spat over future sales rights in the region.

The company’s largest upcoming project is to produce fuel cells that will generate nearly 40 megawatts of electricity for the Long Island Power Authority, with installations to take place over multiple years.

‘Hard to predict’

FuelCell has been in negotiations with Dominion Energy to buy back a 15-megawatt plant in had built in Bridgeport — a megawatt provides power for the rough equivalent of 1,000 homes — with the company also to operate a plant half that size in Groton on behalf of the U.S. Navy.

With financial support from the U.S. government, FuelCell has spent the past few years exploring how its systems could operate in tandem with energy and industrial facilities that emit large amounts of carbon dioxide, which if captured and shunted into its systems could be rechanneled to generate electricity. The company has been working up a demonstration of the system with ExxonMobil, with one researcher at the energy giant describing the potential as a “holy grail” to helping it eliminate carbon dioxide emitted as exhaust at plants powered by natural gas.

FuelCell has stepped up its patent activity the past several years, with about 40 applications currently before the U.S. Patent & Trademark Office after producing less than half that number over a decade through 2016. Last year, the company filed multiple patent applications that envision fuel cells used as components in a system to store excess energy generated by renewable power systems.

On Triangle Street in Danbury not far from its headquarters, FuelCell is experimenting with a new design that configures a system’s modules to glean full utilization of the fuel needed to generate electricity. But the company has yet to reveal any exponential leaps in technology that would represent an emphatic pivot to sustained profitability.

“The ... new order cycle continues to be hard to predict,” Bottone said in early March on a conference call with investment analysts. “We are actively working on a number of projects and are encouraged by the growing appreciation for the energy solution our fuel cells provide.”

Alex.Soule@scni.com; 203-842-2545; @casoulman